From an emotional perspective, steep market declines are difficult to deal with, as we tend to feel the pain of a loss twice as much as we feel the joy from an equal-sized gain (the ratio increases with the size of the investment).

In my previous blog, we looked at the size and volatility of the three equity premiums of beta, size and value. Today we turn our attention to the two premiums that help explain the performance of bond portfolios, term and credit.

As a former lifeguard, I often use the analogy of swimming in the ocean to describe what it’s like to make and sustain investment plans. It can help you as an investor to think of financial markets as vast and full of potential, but also risky should you decide to venture out.

As the director of research for Buckingham Strategic Wealth and The BAM Alliance, whenever markets head south for an extended period, the number of calls I get from clients and other advisors jumps. This time is no different.

The first decision you make with respect to your portfolio is its asset allocation, or the mix of stocks and bonds. This initial step is based on your tolerance for risk and the amount of risk you need to take to achieve your life and financial goals.

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